What Is The Difference Between DVR, Ordinary Equity Shares And Preference Shares?

In India there are different types of shares that are issued from time to time. Equity shares or common shares as they are often called, remain the most popular bets. Here is the difference between shares with Differential Voting Rights (DVRs), Equity Shares and Preference Shares.

Dividends

Preference shares carry a preference over the dividends received, ahead of equity shares. DVR's do not carry a preference over dividend, but, the dividend is always higher than normal equity shares. Preference shares can also have a fixed dividend that is paid every year.

Listing

Both DVRs and Equity shares are listed on the stock exchange, while preference shares are not. DVRs, are always listed much lower than the equity shares. At the moment, the Tata Motors DVR is traded almost at a discount of 25 per cent over the ordinary shares. The discount is not high as in the case of many other places outside India.

Voting rights

DVRs have lesser voting rights than normal equity shares. In some cases it is almost one tenth the voting rights of normal equity shares.

DVRs are issued to avoid hostile takeovers

The reason for issuing different class of shares is different in each case. DVRs are issued to avoid hostile takeover, while preference shares may be issued to promoters to bring in fresh money. Ordinary equity shares are issued for raising capital and also for listing purposes.

Conclusion

Clearly, the purpose of different shares is different. As mentioned the issue of DVRs is to prevent hostile takeovers, though there are not many companies in India, which have issued these type of shares. Tata Motors and Jain Irrigation are the few companies that have issued these type of shares.

The most popular shares in India continue to remain the ordinary equity shares. Clearly, there is a big difference between DVRs, Ordinary Equity Shares and Preference Shares.

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